Responding to Higher and More Volatile World Food Prices

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Abstract

Following the world food price spike in
2008 and again in 2011, there has been increased attention
on better understanding the drivers of food prices, their
impacts on the poor, and policy response options. This paper
provides a simple model that closely simulates actual
historical food price behavior around which the analysis of
the drivers of food price levels, volatility, and the
associated response options is derived. Future food prices
are likely to remain higher than pre-2007 levels and recent
price uncertainty is likely to continue for the foreseeable
future. Accelerated use of food crops for industrial
purposes (biofuels) continues to offset the slowing
population growth effect on food demand. World food stocks
remain at relatively low levels where the likelihood of
price spikes is higher. Production gains may be harder to
achieve in the future than in the past, with more limited
space for area expansion, declining yield growth, and
increases in weather variability. Suggested responses to
reduce average food price levels are to (i) raise food crop
yields, and their resilience, as the single most important
action needed for an enduring solution to global food
security; (ii) improve the rural investment climate to
induce a private sector supply response; (iii) facilitate
land markets to expand planted food crop areas and
strengthen property rights to improve the use of existing
cropped areas; (iv) better use price risk management tools;
and (v) increase the responsiveness of the food system to
price increases through better integrating markets to ensure
world price signals reach more producers to induce a supply
response. To reduce world food price volatility, suggested
responses are to: (1) develop weather-tolerant crop
varieties to reduce food production shocks; (2) improve
management of food-grain stock purchases and releases to
reduce, rather than amplify, local and world food price
volatility; (3) shift to market-based biofuels policies
(make biofuels mandates more flexible); (4) open trade
across all markets to diversify short-term production shocks
dissipating the associated price effects; and (5) improve
market transparency to reduce market uncertainty and the
associated large price corrections following revisions to
market information (production, stocks, and trade).
Suggested measures to reduce the negative impact of price
shocks on food security are: (a) reduce taxes and tariffs
(in some cases) to lower domestic prices, (b) short-term
food and cash transfers to preserve purchasing power, and
(c) support for agricultural production to try to prevent a
next season shortfall that could add to local price increases.